Prepaid expenses appear b as an asset on the balance sheet.
Explanation: Prepaid expenses represent payments made for goods or services that will be received in the future. Since these payments provide future economic benefits, they are classified as assets on the balance sheet until they are actually consumed or utilized. As time passes and the benefits of these expenses are realized, they are gradually expensed on the income statement. This treatment reflects the matching principle in accounting, which aims to match expenses with the revenues they help to generate.